The harvest of the week.
Job growth in the U.S. sends stocks down as the Non-Farm payrolls figures come better than expected, with a reading of of 263K vs 248K forecast, in addition to unemployment rate decreasing to 3.5% vs 3.7%, reflecting a solid labour market and an even stronger U.S. economy.
Markets quickly digested the news with the USD regaining back its strength to trend back near levels of 112, up from its 110 lows of the week. Global stock markets were unable to catch a breather despite a soft rebound this week. The Dow Jones has also risen up from its bearish territory, showing signs of resilience despite recession concerns still fuelling more fears in the market.
The good economic figures are also supported by the latest ADP employment change which also came above expectations. The figures which align with the Feds aggressive tightening, will definitely be a catalyst to support more hefty rate hikes till end of year. Several Fed members have signalled the chances of 125 basis points till end of year which in turn will take a toll on the market’s performance in the next period, while I reckon it could reach to 150 basis points before the year wraps up.
From a technical perspective, the USD can swing to 120 highs, as previously hit in 2001 in the dot-com bubble, ultimately weakening alternative assets. The ultra-hawkish Fed has officially declared a currency war, forcing other central banks such as the Bank of Japan or the People’s bank of China, to intervene and alter their monetary policies to stabilize their own currencies against such a strong U.S. dollar, by selling their USD reserves. Which is why we saw a mild correction on the USD this week.
With geopolitical tensions rising, along with the energy crisis and peaking inflation, the reserve currency war is bound to be more problematic for investors, as we saw with the GBP and the Bank of England surprise of buying 30 year bonds, causing a sudden rebound for the GBP after hitting an all time low. Investors should monitor there open positions as we are likely to see more volatility as other central banks could possibly place more interventions in the next period as their currencies become to more vulnerable to stronger USD.
From the energy perspective, OPEC+ surprises markets with a hefty production cut by 2 million barrels per day, that puts inflation at the forefront against global economic growth. Oil prices were one of the winners of this week, as the cut sent oil prices back to the upside direction on the basis of limited supply.